With the COVID Crisis, One in Four Family Businesses May CloseACCORDING TO THE XII AUB OBSERVATORY, 33% HAVE INADEQUATE CAPITAL AND FINANCIAL STRUCTURE TO FACE THE PANDEMIC AND 25 OR 30% COULD ENTER BANKRUPTCY OR LIQUIDATION PROCESSES IF THEY DO NOT RESORT TO RECAPITALIZATIONS WITH EQUITY
The crisis triggered in 2020 by the pandemic has twice the impact on Italian GDP than the one that began in 2008-2009, which forced 17.5% of Italian family businesses to enter bankruptcy or liquidation processes in the following decade. According to the calculations of the XII AUB Observatory, 25-30% of family businesses are thus at risk, despite entering 2020 in a better equity, income and financial situation than in 2009.
“Apart from the hope that the recovery, this time, will be faster, our analysis shows that the only way out is a greater recourse to equity, accompanied by an opening to non-family leadership and hopefully its rejuvenation,” explains Guido Corbetta, holder of the AIDAF-EY Chair in Strategic Management in family Business in memory of Alberto Falck at Bocconi and editor of the Observatory with Fabio Quarato.
The AUB Observatory, promoted by AIDAF – Italian Family Business, the AIDAF-EY Chair at Bocconi, UniCredit and Cordusio, with the support of Borsa Italiana, Fondazione Angelini and the Chamber of Commerce of Milan Monza Brianza Lodi, monitors all Italian family businesses with a turnover of at least €20mln: 17,984 companies, of which 11,808 are family-owned (65.6%).
The analysis shows that, compared to the beginning of 2009, the share of family businesses with a truly compromised capital or financial structure (negative equity or EBITDA) had dropped from 4.3% to 3.4% and the share of businesses with critical solidity indicators had dropped by ten points (from 38.8% to 29.9%), while businesses with liquidity in excess of debt had risen from 17.7% to 29.5%.
An analysis conducted with FSI (Fondo Strategico Italiano), included in the Observatory, highlights the negative effect of indebtedness on performance over the following five years and shows that, even in the case of a low level of indebtedness, an increase in it has a negative impact on growth and profitability. It follows that at this time the best companies must grow through equity rather than debt.
The Observatory concludes with an initial analysis of the reaction of family businesses to the pandemic crisis, conducted on listed companies (banks and insurance companies excluded). “The data confirm the great responsiveness of family companies and the market's appreciation for such a characteristic,” says Fabio Quarato. Although starting from a decidedly lower level (25% vs. 43% of the total sample, which includes family and non-family members), family businesses almost caught up with the others in the use of smart working (85% vs. 93% of the total sample) during 2020. Moreover, in 77% of cases, family businesses had taken steps to provide support to employees, especially from a safety perspective (protocols and provision of personal protective equipment).
This resulted, for the first half of the year, in a smaller reduction in revenues (10.1% vs. 11.9% for non-family companies), an increase in employment (+3.4%) to be compared with a drop in non-family companies (-1.4%) and a better stock market performance of 22.3%.
“The analysis of the AUB Observatory, which includes a comparison of the top 1,000 groups in Germany, France, Italy and Spain, confirms that family businesses continue to represent the backbone of many of these markets,” comments Francesco Giordano, Co-CEO CB Western Europe at UniCredit. “Italy - where heir share is 43.7% - is a clear example. The Italian figure is in line with Germany (39.5%) and Spain (35.4%) and tells us how the recovery of the European economy is closely linked to these businesses. Precisely for this reason, even more so in the delicate moment we are facing, the role of the banking system and financial support are crucial to sustaining the competitiveness of these businesses. At UniCredit, thanks in part to the synergies between corporate banking and wealth management and to our international presence, we want to guarantee strategic support to our family businesses, supporting their plans not only from a credit perspective, but also offering broader strategic advice that can support new paths of innovation, dimensional growth, internationalization and sustainability.”
"Two things emerge even more powerfully from the research: the great importance of family businesses in our national economy and the need to provide them with governance and management for a healthy generational transition and up to the next challenges,” states Francesco Casoli, President of AIDAF - Italian Family Business.
“The pandemic crisis has made clear the need for more capitalized companies, able to access different financing channels,” comments Barbara Lunghi, Head of Primary Markets at Borsa Italiana, “i.e. responsive and solid businesses as for managerial, management and governance systems. Capital markets and listing can play an important role in providing finance, longevity and resilience to family businesses with clear benefits for our economy. Despite the various elements of uncertainty due not only to the consequences determined by the coronavirus but also to geo-political factors, listings globally have not stopped. Even in Italy, in 2020 there were interesting transactions with 24 new listings, for the most part family businesses. The hope is to see a greater number of family companies choose the stock exchange to strengthen themselves and be able to face the challenges of the market with the right tools and seize the opportunities of an increasingly global ecosystem.”
“Family businesses, better than others, demonstrate that they can face global crises such as the one we are experiencing, but in order to win the great challenge of growth and internationalization, managerial and merit culture and structured succession plans are also indispensable,” comments Sergio Marullo di Condojanni, CEO of Angelini Holding. “In this sense, at Angelini we have embarked on a path that has led us to the definition of a new Group governance that combines an industrial holding of strategic direction with the autonomy and accountability of the operating companies and the managers who manage them.”
by Fabio Todesco